Disney Has Most To Lose, And CBS Most To Gain, If Pay TV Goes A La Carte: Analyst

The conclusions are part of an intriguing study out this morning from Lazard Capital Markets analyst Barton Crocket. Like many Wall Street analysts, he’s eager to know which programmers have the most to gain, and lose, if the current pay TV ecosystem — which requires consumers to pay for channels that they don’t watch — collapses. And Disney is most at risk, Crockett figures based on the results an online survey of 2,240 consumers in May. The study sought to determine how loyal consumers are to different channels. As you might expect, the Big Four broadcasters, ESPN, Discovery Channel, History, USA Network, and TNT have the most dedicated followings. (At the bottom of the list: OWN, Fox Soccer Channel, CNBC, Oxygen, and CMT.) The problem for Disney is that its channels aren’t popular enough to continue to justify the nearly $8.4B a year they currently generate from program fees — about 26% of pay TV’s total programming outlays. Crockett figures Disney’s take could drop 65.2% to $2.9B a year. Other potential losers include Time Warner (not including HBO) which could see yearly payments fall 28.6% to $2.5B, and News Corp (not including its regional sports networks) which could slide 23.2% to $2.8B. But CBS (not including Showtime) could be a big winner in an a la carte world with payments +454.2% to $1.5B. It’s followed by A&E (+168.6% to $1.9B)m Scripps (+164.3% to $1.4B), Discovery (+153.1% to $3.1B), AMC Networks (+87.1% to $782M), NBCUniversal (+66.0% to $4.2B), and Viacom (+1.4% to $3.3B).

But Crockett says that his results should be seen “more as a statement of potential, than an illustration of anything happening now.” He believes the status quo could hold together for at least another decade. Even though cable and satellite companies complain about rising programming costs, he says they probably won’t seriously work to change things until their return on invested capital falls below 15%. That won’t happen until about 2024, assuming programming costs rise 8% a year — and it could last longer if distributors cut other expenses including their outlays for set top boxes. “We believe this helps explain distributor willingness in nearly all instances to buckle and accept the rate hikes rather than go dark and risk subscriber loss,” Crockett says.